McGinley Partners, LLC v. Royalty Properties, LLC

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Appellate Court Date: 2020.09.11
13:25:21 -05'00'
McGinley Partners, LLC v. Royal Properties, LLC, 2020 IL App (1st) 190546Appellate Court McGINLEY PARTNERS, LLC, an Illinois Limited Liability
Caption Company, Plaintiff-Appellee, v. ROYALTY PROPERTIES, LLC, a
Florida Limited Liability Company; RICHARD KIRK CANNON, an
Individual; and MERYL SQUIRES CANNON, an Individual,
Defendants-Appellants.
District & No. First District, Fourth Division
Nos. 1-19-0546, 1-19-0785 cons.
Filed March 31, 2020
Decision Under Appeal from the Circuit Court of Cook County, No. 14-L-005231; the
Review Hon. Daniel Kubasiak, Judge, presiding.
Judgment Affirmed.
Counsel on Richard K. Cannon, of Barrington, for appellants.
Appeal
Katherine M. Saldanha Olson and Joseph S. Messer, of Messer
Strickler, Ltd., of Chicago, for appellee.
Panel PRESIDING JUSTICE GORDON delivered the judgment of the
court, with opinion.
Justices Reyes and Burke concurred in the judgment and opinion.
OPINION
¶1 The instant consolidated appeals represent the second attempt of defendants Royalty
Properties, LLC (Royalty Properties), Richard Kirk Cannon, and Meryl Squires Cannon to
vacate a judgment against them and in favor of plaintiff McGinley Partners, LLC, under
section 2-1401 of the Code of Civil Procedure (Code) (735 ILCS 5/2-1401 (West 2018)).
Plaintiff filed a lawsuit against defendants to enforce a note and guaranty executed in
connection with the sale of a horse farm and obtained an $8.3 million judgment against
defendants in February 2017. Nine months after the entry of the judgment, defendants filed
their first section 2-1401 petition, which was denied by the trial court. Defendants then filed a
second section 2-1401 petition in February 2019, based on alleged fraud and forgery in the
execution of one of the closing documents. While that petition was pending, defendants also
filed a motion for a temporary stay to perfect a settlement, claiming that the parties had reached
a settlement. The trial court denied both the section 2-1401 petition and the motion for a stay.
Defendants appeal both orders and, for the reasons that follow, we affirm.
¶2 BACKGROUND
¶3 As noted, the instant appeal is not the first time the parties have been before this court
regarding the loan and guaranties at issue. 1 Accordingly, where appropriate, we draw from our
prior decisions for our facts.
¶4 Defendants Richard Cannon and Meryl Squires Cannon (collectively, the Cannons) owned
43 horses, which resided on a farm in Barrington Hills owned by Horizon Farms, Inc. (Horizon
Farms). In 2006, Horizon Farms solicited bids in an effort to sell the farm, and the Cannons
submitted a bid of $19.35 million for the property, which was accepted. The Cannons made an
earnest money deposit of nearly $2 million. They financed the rest of the purchase price,
primarily by obtaining a loan of $14.5 million from Amcore Bank in exchange for a mortgage
1
There have been four separate lawsuits before this court concerning the underlying real estate
transaction. They have resulted in seven decisions by this court, with the instant opinion becoming the
eighth. First, defendants Richard Cannon and Meryl Squires Cannon were plaintiffs in a taxpayer action
against the Forest Preserve District of Cook County (Forest Preserve) concerning its authority to
acquire title to the property. Baker v. Forest Preserve District, 2015 IL App (1st) 141157. Next,
defendants litigated the foreclosure of the primary mortgage on the property, leading to appeals in
(1) BMO Harris Bank, N.A. v. Royalty Properties, LLC, 2016 IL App (1st) 151338-U, (2) Forest
Preserve District v. Royalty Properties, LLC, 2017 IL App (1st) 171564-U, and (3) Forest Preserve
District v. Royalty Properties, LLC, 2018 IL App (1st) 181323. While the foreclosure action was
pending, defendant Royalty Farms, LLC, filed a separate action against the Forest Preserve, alleging
that the Forest Preserve breached the duties it assumed as a landlord when it purchased the farm.
Royalty Farms, LLC v. Forest Preserve District, 2017 IL App (1st) 161409. Finally, defendants have
litigated the attempts to collect on the junior note on the property, leading to appeals in (1) McGinley
Partners, LLC v. Royalty Properties, LLC, 2018 IL App (1st) 171317, appeal denied, No. 124085 (Ill.
Nov. 28, 2018); (2) McGinley Partners, LLC v. Royalty Properties, LLC, 2018 IL App (1st) 172976;
and (3) the instant appeal. There have also been at least three federal lawsuits, the most recent of which
was considered by the Seventh Circuit in July 2018. See Cannon v. Forest Preserve District, No. 13 C
6589, 2014 WL 1758475 (N.D. Ill. May 2, 2014); Squires-Cannon v. White, 864 F.3d 515 (7th Cir.
2017); and Squires-Cannon v. Forest Preserve District, 897 F.3d 797 (7th Cir. 2018).
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on the property and the personal guaranties of the Cannons. In order to obtain this financing,
Amcore Bank required the Cannons to form a limited liability corporation to sign for the loan
as the mortgagee. Accordingly, the Cannons created defendant Royalty Properties. In addition,
Horizon Farms, the seller, loaned $1.5 million to Royalty Properties, evidenced by a
promissory note and secured by a second mortgage on the property, as well as the personal
guaranties of the Cannons. Horizon Farms subsequently assigned its interest in the note and
guaranty to the William J. McGinley Marital Trust (trust) upon the dissolution and liquidation
of Horizon Farms. On November 10, 2009, the trust assigned all of its right, title, and interest
in the note and guaranty to plaintiff McGinley Partners, LLC. It is this loan that is the subject of
the instant litigation.
¶5 In 2009, Amcore Bank filed a complaint to foreclose its primary mortgage. In 2010, during
the pendency of the lawsuit, the loan was sold to BMO Harris Bank, which took over the
foreclosure action. BMO Harris Bank, in turn, sold the loan to the Forest Preserve District of
Cook County (Forest Preserve) in June 2013. In August 2013, the trial court granted summary
judgment in favor of the Forest Preserve, entered a judgment of foreclosure, and ordered the
sale of the farm. The Forest Preserve was the highest bidder at the foreclosure sale, and the trial
court entered a $6.2 million deficiency judgment against defendants. 2
¶6 On May 15, 2014, plaintiff filed a verified complaint against defendants to enforce the note
and guaranty executed by them with respect to the Horizon Farms loan. The complaint alleged
that, on December 21, 2006, Royalty Properties executed a promissory note in favor of
Horizon Farms in the amount of $1.5 million, which was secured by a second mortgage. The
note was personally guaranteed by the Cannons pursuant to a guaranty agreement dated
December 21, 2006.
¶7 The complaint set forth two counts. The first count was for breach of the promissory note
and was against Royalty Properties. Count I alleged that the note was in default as a result of
nonpayment and that, as of May 14, 2014, $3,509,025.22 was due and owing under the note.
Count I further alleged that, under the terms of the note, interest continued to accrue at an
annual rate of 20% and that Royalty Properties has refused to pay the amounts due and owing
under the note.
¶8 Count II was for breach of guaranty against the Cannons. It alleged that the Cannons
guaranteed all sums due and owing under the note and that if the note was in default, the holder
of the note was permitted to demand payment of the note from the guarantors. Count II further
alleged that plaintiff had demanded payment but the Cannons refused to pay the amounts due
and owing under the note.
¶9 Attached to the complaint were copies of the promissory note, the mortgage, the guaranty,
and the affidavit of James McGinley, a trustee and beneficiary of the trust that made the
demand for payment prior to the trust’s assignment to plaintiff.
¶ 10 After a denial of a motion to dismiss, the parties engaged in discovery, and plaintiff filed a
motion for summary judgment, which was granted on August 31, 2016. After plaintiff filed its
prove-up affidavit, the trial court issued an opinion in which it found that there was a question
The trial court’s grant of summary judgment was reversed by this court in BMO Harris Bank, 2016
2
IL App (1st) 151338-U. After a trial, an order confirming the foreclosure sale and entering a deficiency
judgment was entered on September 30, 2019. Defendants filed a notice of appeal under case No.
1-19-2236, but that appeal was dismissed by agreement on December 17, 2019.
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of fact concerning the amount of damages. Plaintiff filed a motion to reconsider, and on
February 2, 2017, the court granted plaintiff’s motion for reconsideration, finding that there
was actually no question of fact concerning the amount of damages. It entered judgment in
favor of plaintiff against defendants in the amount of $8,320,669.43. We affirmed the trial
court’s grant of summary judgment. in McGinley Partners, 2018 IL App (1st) 171317, ¶ 68.
¶ 11 On November 9, 2017, while the appeal from the grant of summary judgment was pending,
defendants filed a petition to vacate the February 2, 2017, judgment pursuant to section 2-1401
of the Code. Defendants claimed that a December 21, 2006, “Intercreditor Agreement” was an
enforceable contract between the parties that barred plaintiff’s action against defendants and
that this agreement was not disclosed in any way by plaintiff in the instant action. Defendants
acknowledged that the agreement was signed by defendant Richard Cannon but claimed that
he was given the document as part of a 500-page group of loan documents and was not given
the chance to review them prior to the closing. 3 Defendants claimed that the agreement did not
come to their attention until they reviewed the closing documents during the foreclosure action
filed by the senior lender (currently the Forest Preserve).
¶ 12 On November 15, 2017, plaintiff filed a motion to dismiss the section 2-1401 petition,
claiming that (1) defendants had not alleged a defense that would have precluded the entry of
judgment against them, (2) plaintiff had not engaged in any deception and had attached and
produced all documents required by it during the course of the litigation, (3) none of the
defendants had standing to enforce the intercreditor agreement, and (4) defendants were not
diligent in bringing the matter to the trial court’s attention because the document had been in
their possession since 2006.
¶ 13 On November 22, 2017, the parties appeared before the trial court for a hearing on the
section 2-1401 petition, as well as on plaintiff’s motion to dismiss the petition. Prior to the
commencement of the hearing, the trial court asked the parties whether
“procedurally, are we all in agreement that we want this hearing today and now? This
was presented this morning. I’m comfortable. I’ve had enough of an opportunity to
review it. But I want to make sure that we’re all in agreement that we should be
proceeding today and you don’t want to file something.”
Defendants’ counsel indicated that he was prepared to proceed with the hearing at that time.
However, counsel noted that “I learned something last night—or literally late in the afternoon
yesterday that I think is important both factually and legal for these proceedings today, which I
will raise with the Court, that I think might indicate or shed some different light on this.”
¶ 14 Plaintiff’s counsel proceeded to argue that the section 2-1401 petition should be dismissed
because defendants had failed to establish a meritorious defense or that they had been diligent
in bringing the matter to the court’s attention. During his argument, defense counsel asserted
that the terms of the intercreditor agreement barred plaintiff’s suit and maintained that
defendants had not closely examined the closing documents until discovery in the foreclosure
suit, at which point they discovered the intercreditor agreement. Defense counsel argued that
3
The circumstances surrounding the closing of the sale of the property, including the allegations
that defendants were given less than one day to review 500 pages of loan documents prior to closing
and were pressured to close or forfeit their nearly $2 million deposit, were the basis of our first decision
in BMO Harris Bank, 2016 IL App (1st) 151338-U, in which we found that there was a question of fact
as to whether economic duress invalidated the loan documents defendants signed.
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he was not required to “fly spec” each closing document, as the issues were framed by the
pleadings, and claimed that plaintiff had been deceptive in not disclosing the existence of the
intercreditor agreement. Defense counsel then claimed that “we learned last night” that there
were e-mails showing that there had been a prior version of the intercreditor agreement.
Defense counsel argued that
“what we have here, what we have is an indication that this agreement was in one form,
in one version on the day of the closing signed by my client, even though he didn’t read
it, and then we have the next morning changes that were never disclosed to my client.” 4
Defense counsel then continued arguing that the terms of the intercreditor agreement
precluded plaintiff’s action. Defense counsel continued:
“There has been no violation of due diligence. There’s been no negligence here
because as a lawyer my duty is confined by the issues, and my client did not say in this
affidavit, I forgot. He didn’t say that. He said, I never knew. I never knew.
And now they raise it as a defense when if you look at this document, at the bottom
of the first page, you’re going to see a Chicago Title version number. At the bottom it
says—it’s a long number, and it says at the end point 3. And you go through these
pages, it’s all point 3, point 3, point 3, point 3, point 3 until you get to the signature
page, and the signature page is point 1. And then you go to the—the legal description is
point 3.
Now, what does that mean? It means that in the [Chicago Title] computer system
this ends up being—the binding document ends up being the third version that is
prepared, changed, kicked out, and they take signature pages from the one that my
client signed during a hurried closing, attach it, and then end up surfacing this. We
don’t know what was before. We don’t know what version was before. It could be even
more favorable. And yet, this is the document they’ve known about, and it’s a
fraudulent document in my opinion. They’re bound by it because they signed it. They
attached the signature pages. I don’t know what was—went before this. I don’t know
what was really signed at the closing and neither does my client.”
Defense counsel continued, arguing that defendants should not have been expected to discover
the intercreditor agreement and that plaintiff committed fraud by failing to disclose it,
concluding:
“Now, what happened is that the discovery in the other case, because it’s on
remand, now [the] senior lender’s role and petition is in focus, and that’s why these
documents were fly specced, and that’s why we’ve come up with these.
So we may not even have the correct agreement that was signed at closing. I still
think it’s binding, but the prior agreement might even be more favorable to my clients.”
4
Defendants confirmed in their reply in support of a motion to quash subpoenas that “the Cannons
recently learned for the first time on November 21, 2017 *** that there had been an email exchange
between the lawyers for Amcore Bank and Horizon Farms one day after the 2006 closing. Those emails
conclusively demonstrate that the Intercreditor Agreement was altered with respect to the terms that
originally existed in it on the day of the closing, December 21, 2006, when it was executed by Royalty
Properties—and that the Royalty Properties previous-day signature page was then attached to the
altered document without its knowledge.” (Emphasis in original.)
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¶ 15 In responding to defense counsel’s arguments, plaintiff’s counsel again argued that the
intercreditor agreement did not bar plaintiff’s action and that defendants were not diligent in
presenting their claim. Counsel noted:
“[W]ith respect to these additional documents, counsel stated that this agreement is
binding, so I don’t know what he’s bringing these additional documents for. They’re
also not attached to the petition. They’re extraneous to the agreement themselves. I
think the point he stressed is that the client knew about them, Robert [sic] read those
documents. Even if you didn’t read the 500 documents, I would stress that he probably
should have read the 269 pages that were produced which included the intercreditor
agreement.”
Counsel continued:
“[W]hile counsel wants to qualify that as a question of fact as whether or not they
should have read those documents, I don’t think we need to waste this Court’s time or
anybody’s time with sitting through a hearing to decide whether or not an attorney or
his clients are diligent in bringing an agreement that they not only signed themselves,
whatever version of it you’re going to claim it was in, you attach the version that you
are relying on in the petition. So that one says 2006. The same document was also
produced by them in discovery and by [the firm representing Horizon Farms at the
closing]. That’s all we really need to talk about here is that aspect of a petition.”
¶ 16 After hearing argument from the parties, the trial court first found that there was no due
diligence in raising the matter in the underlying action, as defendants undisputedly had the
intercreditor agreement in their possession. Additionally, the court found that defendants
lacked a meritorious defense to the underlying action. Accordingly, the trial court entered an
order dismissing defendants’ section 2-1401 petition with prejudice, a decision we affirmed on
appeal in McGinley Partners, 2018 IL App (1st) 172976, ¶¶ 1, 22. In our decision, we found
that defendants had failed to establish that they acted with due diligence and, consequently,
found it unnecessary to consider whether they had established a meritorious defense. McGinley
Partners, 2018 IL App (1st) 172976, ¶ 35.
¶ 17 On February 1, 2019, defendants filed a second verified petition to vacate judgment,
seeking to vacate the judgment pursuant to section 2-1401 of the Code. Defendants claimed
that they discovered—in documents received November 21, 2017, and in depositions
conducted in March 2018—that on the day after the closing, Horizon Farms and Amcore Bank
“secretly and substantially altered” the intercreditor agreement and “forged” defendants’
signatures on the document by attaching the prior day’s signature page to the new version.
Defendants claimed that Horizon Farms and Amcore Bank then destroyed all copies of the
original document and caused the altered document to be distributed to defendants as though it
was a true copy of what had been signed.
¶ 18 Defendants claimed that the new version of the intercreditor agreement deleted a
paragraph, former paragraph 5.9, as well as inserting new language that was favorable to the
lenders and increased the risk to the Cannons. Defendants pointed to a provision limiting the
amount of post-default interest and fees, noting that the amount that Amcore Bank could
collect on the senior loan prior to Horizon Farms’s recovery on the junior loan had been raised
from $500,000 to $1 million, which they claimed increased their risk under the Horizon Farms
loan. Defendants also pointed to the addition of a paragraph expressly stating that the
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intercreditor agreement was solely for the benefit of the lenders, claiming that the insertion of
this language prevented defendants from enforcing the agreement.
¶ 19 Attached to the section 2-1401 petition were a number of exhibits. First, an e-mail dated
December 22, 2006, from Dennis Wilson, Horizon Farms’s counsel, to Robert McGinley and
Scott Gudmundson, Amcore Bank’s attorney, provided, in relevant part:
“Scott: Enclosed is a blackline of the Intercreditor reflecting the changes that we
discussed last night. Please call me about this as soon as possible.”
There is no attachment included in the record on appeal. Another e-mail, sent slightly over an
hour later on behalf of Gudmundson, contained as an attachment a version of the intercreditor
agreement containing a footer that ended in “.2” (version 2). The attachment begins with a
page marked “13/22,” and contains a version of the agreement including several handwritten
changes. One such change was to paragraph 2.1, which originally provided, in relevant part:
“Senior Lender and Junior Lender acknowledge that Senior Lender shall be entitled to
receive the first $14,500,000 of proceeds from any Enforcement Action plus interest
and its reasonable costs of any Enforcement Action, not to exceed $500,000 in the
aggregate and that Junior Lender shall after such payment to Senior Lender then be
entitled to receive from any Enforcement Action the amount due on the Junior Note up
to a maximum of $1,500,000, plus interest and its reasonable costs of any Enforcement
Action, not to exceed $200,000 in the aggregate.”
A handwritten change to paragraph 2.1 crossed out “$500,000” and inserted “$1,000,000” for
the limitation on recovery by the senior lender.
¶ 20 Paragraph 5.7 was included in version 2 with no handwritten changes, 5 and provided:
“5.7 No Third Party Beneficiaries. Nothing contained in this Agreement shall be
deemed to indicate that this Agreement has been entered into for the benefit of any
Person other than Senior Lender and Junior Lender.”
Finally, version 2 follows paragraph 5.8 with paragraph 5.10; there is no paragraph 5.9.
Version 2 ends on page 9, with signature lines immediately below the ending of the text.
¶ 21 Next, an e-mail sent approximately an hour later from Wilson to Gudmundson provided:
“Scott: Enclosed is the revised form of the Intercreditor Agreement reflecting the
changes discussed with you. I will send the clean copy, including the legal description
to Angie Koetters for her to attach the signature pages. Please confirm to her that is
acceptable to you.”
Seven minutes later, an e-mail sent from Wilson to Koetters provided:
“Angie: Enclosed is the final form of the Intercreditor Agreement. Please attach the
signature pages that were deposited with you to this. I have asked Scott Gudmunson
[sic] to confirm that [with] you.”
As with the last e-mail sent from Wilson, there are no attachments included in the record on
appeal for either of these e-mails.
¶ 22 Next, attached to the section 2-1401 petition was a copy of the intercreditor agreement that
was allegedly provided to defendants (version 3). The majority of the pages of the document
contain a footer that ends with “.3,” other than the signature page, which ends with “.1.” Most
5
While plaintiff repeatedly claims that paragraph 5.7 was not originally included in the intercreditor
agreement, the record shows that, at the latest, this paragraph was included in version 2.
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of the changes handwritten onto version 2 were included in version 3; version 3 adds a total of
10 lines of text. Version 3 ends with 17 lines of text on page 9, with a separate signature page
following; the signature page is also labeled as page 9.
¶ 23 Also attached to the section 2-1401 petition were excerpts of transcripts from the discovery
depositions of Wilson and Gudmundson in connection with the foreclosure action, which were
conducted on February 28, 2018, and March 21, 2018, respectively. In his deposition, Wilson
was unable to recall most of the details of the closing, but testified that his “best recollection”
was that the closing took place over two days. One of the items that was not completed the first
day was the intercreditor agreement, which was “a rather last minute document” that was
prepared to address the relationship between the first lien with Amcore Bank and the second
lien with Horizon Farms. Based on e-mails that were presented to him as exhibits, Wilson
testified that he had a telephone conversation with Gudmundson on the evening of December
21, 2006, which resulted in changes to the intercreditor agreement. Wilson testified that the
final intercreditor agreement was the third version, which was sent to Chicago Title, and that
he requested that the original signature page be appended to the third version. Wilson testified
that defendants’ counsel was not copied on the e-mail correspondence concerning the
intercreditor agreement. When asked why he asked that the original signature page be
appended to the third version of the intercreditor agreement, Wilson responded, “[b]ecause the
parties had agreed to it.” He was unable to recall what circumstances led him to believe that
Royalty Properties had agreed to the changes.
¶ 24 In his deposition, Gudmundson also testified that the closing occurred over two days and
that Wilson took the lead in drafting the intercreditor agreement. Gudmundson testified that
the parties had signed the intercreditor agreement on December 21, 2006, and left the signature
pages with the closer “because the final form hadn’t been agreed to” and they were still
working on it. Gudmundson testified that if parties deposited a signature page with the closing
agent, they intended that the signatures would be attached to a document later; Gudmundson
testified that “that’s the whole point.” Gudmundson later testified that “[t]here was not a
complete final version of the intercreditor agreement signed by the parties on December 21. It
was a cutoff signature page following a page that says, ‘Signature page follows, deposited in
the escrow on the 21st.’ Everyone walked out of that closing knowing that this document was
going to change.” Gudmundson testified that defendants’ attorney likely would not have been
concerned about the changes to the intercreditor agreement, as they were only concerned with
“who got what money between the two creditors.” He and Wilson exchanged drafts of the
intercreditor agreement via e-mail and fax on December 22. Gudmundson could not recall
whether the changes were discussed with defendants’ attorney, with whom he had
communicated via telephone that day, but testified that defendants’ attorney was not included
in the e-mails. Gudmundson testified that he did not recall defendants’ attorney expressly
stating that his clients’ signatures could be affixed to a document that would later be finalized.
¶ 25 Finally, attached to the section 2-1401 petition was the affidavit of defendant Richard
Cannon, in which he averred that defendants did not authorize anyone to attach their signatures
to a later-modified agreement, nor would their attorney have done so. Cannon further averred
that the original intercreditor agreement did not contain paragraph 5.7 and that the page
numbering of the documents indicated that at least 20 lines of text were added between the
original version and version 3. Cannon averred that defendants would not have signed the note
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and guaranty if the intercreditor agreement had included the modified provisions included in
version 3.
¶ 26 On February 22, 2019, plaintiff filed a motion to dismiss the section 2-1401 petition
pursuant to section 2-615 of the Code (735 ILCS 5/2-615 (West 2018)), claiming that the
petition was barred by res judicata because both the original section 2-1401 petition and the
instant section 2-1401 petition were based on the allegation that paragraph 2.1 of the
intercreditor agreement constituted a meritorious defense to the judgment. Plaintiff also
pointed to the fact that the purported limits on recovery between defendants and the junior
lender were not alleged to have changed between versions—the only claimed unauthorized
change was an increase to the aggregate amount of costs the senior lender could purportedly
recover. Plaintiff also argued that, at a minimum, the petition was barred by collateral estoppel,
as all of the claimed fraudulent changes to the intercreditor agreement were apparent on the
face of the agreement, which had been in defendants’ possession since December 2006.
Additionally, the trial court in the first section 2-1401 petition had concluded that paragraph
2.1 did not provide a meritorious defense, collaterally estopping defendants from again raising
the argument.
¶ 27 Plaintiff also claimed that the petition was barred by judicial estoppel because defendants
had previously claimed that the intercreditor agreement attached to the petition was a true and
accurate copy of the governing agreement and their current contentions that they would not
have signed the intercreditor agreement with its present terms was belied by their prior
admissions that they did not read the agreement prior to signing and were not aware of its
provisions. Finally, plaintiff claimed that defendants failed to establish a meritorious defense
because paragraph 2.1 did not alter defendants’ obligations under the note or guaranty,
defendants did not have standing to enforce paragraph 2.1, and defendants had not been
diligent in discovering the defense or in presenting the petition.
¶ 28 Attached to the motion to dismiss was, inter alia, defendants’ motion to dismiss the
foreclosure action, filed on March 8, 2018, in which they claimed that the foreclosure action
should be dismissed based on the recent discovery of the fact that the intercreditor agreement
had been modified after defendants signed it, which they contended constituted forgery and
fraud.
¶ 29 On March 12, 2019, defendants filed a combined response to the motion to dismiss and
reply in support of their section 2-1401 petition, claiming that they had established a
meritorious defense and that they had presented their claims with due diligence.
¶ 30 On March 14, 2019, defendants filed a “Motion for Temporary Stay to Perfect Settlement,”
in which defendants claimed that the parties had reached a settlement agreement in principle
and had agreed to seek an immediate stay of the proceedings while the details were finalized.
Accordingly, defendants requested a stay of at least two weeks.
¶ 31 On March 15, 2019, the parties came before the trial court for a hearing on the section
2-1401 petition, as well as on a number of other pending motions concerning citations to
discover assets. The court first addressed defendants’ motion for a temporary stay, asking
whether there had been a settlement. Plaintiff’s counsel responded, “No.” Defendants’ counsel
stated that there were “some emails that formulate the settlement” and provided the trial court
with copies of the e-mails. 6 Defendants’ counsel stated that on March 7, defendant Meryl
6
The e-mails are not contained in the record on appeal.
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Squires Cannon reached out to plaintiff and asked if they could settle the case. On March 11,
Robert McGinley made a counteroffer on behalf of plaintiffs, to which she, in turn,
counteroffered on March 12. Plaintiff made another counteroffer, which Meryl accepted on
March 14. Plaintiff’s counsel interrupted defendants’ counsel, stating “If. I think ‘if’ was a big
part of that.” 7 Defense counsel then continued arguing that there was a settlement, and the trial
court interjected, noting that it was prepared to enter an order denying defendants’ section
2-1401 petition. The court stated:
“THE COURT: So the issue of the judgment is the judgment is the judgment, as far
as I’m concerned.
And the only issue is: How does the creditor collect and how does the Court
preserve and protect the rights of the debtor?
[DEFENDANTS’ COUNSEL]: Well, we have a settlement. So that means this case
is over, Judge. There’s no need—
THE COURT: Until you give me a settlement agreement signed by both parties, it
is not over.”
¶ 32 Defense counsel then continued to claim that there was a settlement, and plaintiff’s counsel
interrupted:
“[PLAINTIFF’S COUNSEL]: There is no settlement, [Y]our Honor. And I suspect
that counsel failed to provide you the next email in that chain where our client says:
Meryl, we have never agreed to stay the litigation. We cannot do so unless and until we
sign a fully binding settlement agreement and have adequate security in place to ensure
your performance under that agreement.
THE COURT: All right.
[DEFENDANTS’ COUNSEL]: Judge, we have a settlement on the number. Okay?
The only issue—
THE COURT: But, Counsel, I appreciate that, but you also understand that a lot
goes into reaching a final settlement.
And you also I suspect can appreciate the fact that there’s not complete recognition
of a genuine willingness to settle on the part of the creditor.”
When defense counsel continued to argue that there was a settlement, the court threatened to
hold him in contempt and stated:
“THE COURT: I have told you that this matter is not before the Court, that this issue
has not been settled.
Until I see a settlement agreement that the parties have agreed on, until counsel for
your opponent agrees that it’s been settled, there is no settlement.”
However, the court did allow the parties to stay the proceedings for seven days, provided that
the parties were working toward settlement. Accordingly, while the court denied defendants’
motion for a stay as presented, it nevertheless continued the matter to give the parties time to
finalize a settlement. 8
7
Plaintiff’s counsel later indicated that Cannon’s offer included the statement, “[i]f you agree to
stay,” which counsel said plaintiff refused to do.
8
The record shows that the parties never met to discuss settlement during the seven days.
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¶ 33 On the same day, the trial court entered a written order denying the section 2-1401 petition,
finding that any new evidence of changes to the intercreditor agreement did not affect or alter
defendants’ obligations under the promissory note or guaranty, as the only change was an
increase to the aggregate amount of costs that the senior lender could recover. The court also
found that defendants were not diligent in discovering their defense, as defendants had
possessed the intercreditor agreement for over 12 years. The court further found that
defendants had not established a meritorious defense because defendants lacked standing to
enforce the payment priority language set forth in paragraph 2.1 of the intercreditor agreement.
Finally, the court found that the changes to the intercreditor agreement did not increase the risk
to the guarantors, so as to entitle them to be discharged from their obligations under the
guaranty.
¶ 34 These consolidated appeals follow; appeal No. 1-19-0546 is an appeal from the trial court’s
denial of defendants’ section 2-1401 petition, while appeal No. 1-19-0785 is an appeal from
the trial court’s denial of defendants’ motion for a temporary stay.
¶ 35 ANALYSIS
¶ 36 On appeal, defendants challenge two separate trial court orders. First, they challenge the
trial court’s denial of their motion for a temporary stay. Second, they challenge the trial court’s
denial of their section 2-1401 petition. We consider each in turn.
¶ 37 I. Motion for Temporary Stay
¶ 38 First, defendants claim that the trial court erred in denying their request for a stay based on
settlement. While defendants claim that a de novo standard of review is appropriate, our courts
have consistently found that “[t]he decision to grant or deny a motion to stay will not be
overturned unless the court abused its discretion.” Guarantee Trust Life Insurance Co. v.
Platinum Supplemental Insurance, Inc., 2016 IL App (1st) 161612, ¶ 35; Cholipski v. Bovis
Lend Lease, Inc., 2014 IL App (1st) 132842, ¶ 39. “The standard of ‘abuse of discretion’ is the
most deferential standard of review recognized by the law; a decision will be deemed an abuse
of discretion only if the decision is ‘unreasonable and arbitrary or where no reasonable person
would take the view adopted by the circuit court.’ ” Pekin Insurance Co. v. St. Paul Lutheran
Church, 2016 IL App (4th) 150966, ¶ 69 (quoting Gulino v. Zurawski, 2015 IL App (1st)
131587, ¶ 64).
¶ 39 In the case at bar, the trial court denied defendants’ motion because it found that they had
not established that there was, in fact, a settlement between the parties. The party seeking a stay
bears the burden of proving adequate justification for it. Kaden v. Pucinski, 263 Ill. App. 3d
611, 615 (1994). Thus, it was defendants’ burden to establish that there was a settlement
between the parties. Defendants’ motion for a stay did not contain any exhibits to support the
claim that the parties had agreed to a stay while the details of settlement were finalized. Before
the trial court on March 15, 2019, defendants presented several e-mails that they claimed
constituted the settlement agreement; these e-mails are not included in the record on appeal. 9
9
To the extent that the contents of any of the e-mails differ from what was discussed before the trial
court, we note that defendants, as the appellants, bore the burden of providing this court with a
sufficiently complete record and that, in the absence of such a record, we must presume that the order
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The trial court examined the e-mails and heard arguments from the parties concerning the issue
of settlement—defendants claimed that an agreement had been reached, while plaintiff’s
counsel vehemently disagreed. After considering the evidence and arguments presented, the
trial court concluded that no settlement had been reached. From the portions of the e-mails
discussed during the hearing, we cannot find that this decision constituted an abuse of
discretion.
¶ 40 Defendants are correct that, as with any contract, a settlement agreement does not need to
be in writing, so long as there was an offer and acceptance and there was a meeting of the
minds as to the terms of the agreement. See City of Chicago v. Ramirez, 366 Ill. App. 3d 935,
946 (2006). However, in the case at bar, the trial court found that there was no such meeting of
the minds. Defendants insist that the trial court “refused to consider” evidence of the settlement
because no written settlement agreement had been executed. This was clearly not the case.
Defendants claimed that the settlement was based on the contents of certain e-mails, they
presented those e-mails to the trial court, and the trial court had the opportunity to review those
e-mails and made its decision based on them and on the arguments of the parties. Moreover,
defendants entirely overlook the fact that, despite its denial of their motion, the trial court
nevertheless continued the matters before it for seven days, specifically to provide the parties
with an opportunity to pursue settlement, which was not accomplished during that time.
Accordingly, we can find no error in the trial court’s denial of defendants’ motion for a stay
based on settlement.
¶ 41 II. Section 2-1401 Petition
¶ 42 Next, defendants claim that the trial court erred in denying their section 2-1401 petition to
vacate the judgment. We discussed the general law applicable to section 2-1401 petitions in
reviewing defendants’ first petition, and it remains applicable here. Section 2-1401 “provides a
comprehensive statutory procedure by which final orders, judgments, and decrees may be
vacated ‘after 30 days from the entry thereof.’ ” Smith v. Airoom, Inc., 114 Ill. 2d 209, 220
(1986) (quoting Ill. Rev. Stat. 1983, ch. 110, ¶ 2-1401(a)). “[A] section 2-1401 petition can
present either a factual or legal challenge to a final judgment or order. *** [T]he nature of the
challenge presented in a section 2-1401 petition is critical because it dictates the proper
standard of review on appeal.” Warren County Soil & Water Conservation District v. Walters,
2015 IL 117783, ¶ 31. Where the petition raises a factual challenge, as in the case at bar,
“[t]o be entitled to relief under section 2-1401, the petitioner must affirmatively set
forth specific factual allegations supporting each of the following elements: (1) the
existence of a meritorious defense or claim; (2) due diligence in presenting this defense
or claim to the circuit court in the original action; and (3) due diligence in filing the
section 2-1401 petition for relief.” Airoom, 114 Ill. 2d at 220-21.
“The quantum of proof necessary to sustain a section 2-1401 petition is a preponderance of the
evidence.” Airoom, 114 Ill. 2d at 221.
¶ 43 “Whether a section 2-1401 petition should be granted lies within the sound discretion of
the circuit court, depending upon the facts and equities presented.” Airoom, 114 Ill. 2d at 221.
“In reviewing discretionary rulings by the trial court, an appeals court must look to the criteria
entered by the trial court was in conformity with the law and had a sufficient factual basis. Foutch v.
O’Bryant, 99 Ill. 2d 389, 391-92 (1984).
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on which the trial court should rely to determine if the trial court abused its discretion.”
(Internal quotation marks omitted.) Paul v. Gerald Adelman & Associates, Ltd., 223 Ill. 2d 85,
99 (2006).
“ ‘[A] trial court abuses its discretion if it fails to apply the proper criteria when it
weighs the facts,’ and a reviewing court ‘must consider both the legal adequacy of [the]
way the trial court reached its result as well as whether the result is within the bounds of
reason.’ ” Paul, 223 Ill. 2d at 99 (quoting People v. Ortega, 209 Ill. 2d 354, 360
(2004)).
¶ 44 In the case at bar, plaintiff first raises a number of procedural challenges to defendants’
section 2-1401 petition, namely, res judicata, collateral estoppel, and judicial estoppel. A prior
judgment may have preclusive effect in a subsequent action under both res judicata and
collateral estoppel. Nowak v. St. Rita High School, 197 Ill. 2d 381, 389 (2001). “ ‘The doctrine
of res judicata provides that a final judgment on the merits rendered by a court of competent
jurisdiction bars any subsequent actions between the same parties or their privies on the same
cause of action.’ ” Hudson v. City of Chicago, 228 Ill. 2d 462, 467 (2008) (quoting Rein v.
David A. Noyes & Co., 172 Ill. 2d 325, 334 (1996)). Res judicata bars relitigation of matters
that were actually decided in the first lawsuit, as well as matters that could have been decided
in that suit. River Park, Inc. v. City of Highland Park, 184 Ill. 2d 290, 302 (1998).
¶ 45 By contrast,
“[t]he doctrine of collateral estoppel applies when a party, or someone in privity with a
party, participates in two separate and consecutive cases arising on different causes of
action and some controlling fact or question material to the determination of both
causes has been adjudicated against that party in the former suit by a court of competent
jurisdiction.” Nowak, 197 Ill. 2d at 389-90.
However, unlike with res judicata, the judgment in the first suit operates as an estoppel only as
to the point or question actually litigated and determined, not as to other matters that might
have been litigated and determined. Nowak, 197 Ill. 2d at 390.
¶ 46 We first consider plaintiff’s arguments concerning res judicata. Three requirements must
be satisfied for res judicata to apply: (1) a final judgment on the merits has been reached by a
court of competent jurisdiction, (2) an identity of cause of action exists, and (3) the parties or
their privies are identical in both actions. Hudson, 228 Ill. 2d at 467 (citing Downing v.
Chicago Transit Authority, 162 Ill. 2d 70, 73-74 (1994)).
¶ 47 Here, the parties do not dispute that the trial court’s prior order denying defendants’ first
section 2-1401 petition was a final judgment on the merits and that the parties are identical in
both actions. The only question is whether there is an identity of cause of action. “[S]eparate
claims will be considered the same cause of action for purposes of res judicata if they arise
from a single group of operative facts, regardless of whether they assert different theories of
relief.” River Park, 184 Ill. 2d at 311. The original section 2-1401 petition was based on
defendants’ claim that paragraph 2.1 of the intercreditor agreement precluded the junior lender
from enforcing its promissory note until the senior loan was paid. Defendants also claimed that
plaintiff deceptively concealed the existence of the intercreditor agreement from defendants
and the court by not attaching it to its complaint or otherwise revealing its existence. Like the
first petition, the section 2-1401 petition at issue in the instant appeal also claims that
paragraph 2.1 of the intercreditor agreement limited plaintiff’s recovery. The instant petition
also claimed that the lenders had been deceptive by attaching the original signature page to
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version 3 of the intercreditor agreement and that the changes in the agreement increased the
risk to the guarantors.
¶ 48 We agree with plaintiff that the claims set forth in the two section 2-1401 petitions arise
from the same group of operative facts. Specifically, both focus on the interpretation of
paragraph 2.1 of the intercreditor agreement as a meritorious defense, and both allege that
plaintiff or its predecessor in interest engaged in deceptive or fraudulent conduct in order to
hide the terms of the intercreditor agreement from defendants. The only difference between the
two petitions is that the second one raises the issue of the intercreditor agreement having been
modified without defendants’ knowledge, which defendants claim constitutes
newly-discovered evidence that precludes the applicability of res judicata.
¶ 49 “ ‘The rule in Illinois is that res judicata extends only to the facts and conditions as they
were at the time a judgment was rendered. When new facts or conditions intervene before a
second action, establishing a new basis for the claims and defenses of the parties respectfully,
the issues are no longer the same, and the former judgment cannot be pleaded as a bar in a
subsequent action.’ ” In re Estate of Brown, 2014 IL App (1st) 122857, ¶ 25 (quoting Northern
Illinois Medical Center v. Home State Bank of Crystal Lake, 136 Ill. App. 3d 129, 144 (1985)).
In the case at bar, however, the record establishes that evidence of the multiple versions of the
agreement was available before the time that judgment was entered on the initial petition.
¶ 50 First, the intercreditor agreement that defendants had in their possession since 2006 listed
two different version numbers on its face, meaning that, if they had looked closely, defendants
could have observed that the number on the substantive portion of the agreement did not match
the number on the signature page. Even putting aside that technicality, however, defendants
indisputably became aware of the different versions of the intercreditor agreement on
November 21, 2017, the day before the hearing on the initial section 2-1401 petition.
Defendants’ counsel specifically referenced the e-mails between Amcore Bank and Horizon
Farms during the hearing, and the record is replete with references to November 21, 2017, as
the date that defendants became aware of the e-mails. Despite this knowledge, defendants did
not seek a continuance or otherwise seek to amend or supplement their initial petition with the
additional facts that had become known to them. Indeed, the trial court even asked defense
counsel at the beginning of the November 22 hearing whether the defense wished to proceed
on plaintiff’s motion to dismiss or wished to file a response, suggesting that the trial court
would have been receptive to a continuance. Thus, while the facts were not known to
defendants until after the filing of the initial section 2-1401 petition, they were known to
defendants prior to the time the trial court ruled on the petition.
¶ 51 “When res judicata is established as a bar against the prosecution of a second action
between the same parties upon the same claim or demand it is conclusive not only as to every
matter which was offered to sustain or defeat the claim or demand, but as to any other matter
which might have been offered for that purpose.” (Emphases in original.) Nowak, 197 Ill. 2d at
389 (citing Housing Authority for La Salle County v. Young Men’s Christian Ass’n of Ottawa,
101 Ill. 2d 246, 251-52 (1984)). Here, defendants’ claims could have been raised in their
original section 2-1401 petition; therefore, res judicata applies to bar defendants’ claims in the
second petition.
¶ 52 However, even if the claims were not barred, we would not be able to find that the trial
court abused its discretion in denying the section 2-1401 petition. As noted,
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“[t]o be entitled to relief under section 2-1401, the petitioner must affirmatively set
forth specific factual allegations supporting each of the following elements: (1) the
existence of a meritorious defense or claim; (2) due diligence in presenting this defense
or claim to the circuit court in the original action; and (3) due diligence in filing the
section 2-1401 petition for relief.” Airoom, 114 Ill. 2d at 220-21.
In the case at bar, the trial court did not find that any of these elements were satisfied.
¶ 53 With respect to the issue of diligence, to prevail on a section 2-1401 petition, the petitioner
must affirmatively set forth specific factual allegations supporting both the petitioner’s “due
diligence in presenting [a meritorious] defense or claim to the circuit court in the original
action; and *** due diligence in filing the section 2-1401 petition for relief.” Airoom, 114 Ill.
2d at 220-21. “No bright-line rule exists for judging whether a petitioner has acted diligently.
Rather, due diligence is judged by the reasonableness of the petitioner’s conduct under all of
the circumstances.” Paul, 223 Ill. 2d at 99-100.
¶ 54 In the case at bar, we agree with the trial court that defendants did not act with due
diligence in presenting their section 2-1401 petition to the court. As noted, defendants first
discovered that there were multiple versions of the intercreditor agreement on November 21,
2017. However, they did not file their section 2-1401 petition until February 1, 2019, over 14
months later. Defendants attempt to justify this delay by pointing to the fact that they needed to
conduct depositions of authors of the e-mails and needed time to draft their petition. However,
this argument glosses over defendants’ actions during this 14-month time frame. Defendants
conducted the deposition of Wilson on February 28, 2018, and the deposition of Gudmundson
on March 21, 2018. More importantly, by March 8, 2018, defendants had sufficient knowledge
of the facts underlying the different versions of the intercreditor agreement that they filed a
motion to dismiss in the foreclosure action, based on the same arguments they raise in the
instant section 2-1401 petition. Thus, the same arguments that defendants claim required 14
months to develop here were first presented to a different trial court 11 months earlier. Indeed,
they had been rejected by that trial court 11 months before the filing of the section 2-1401
petition. Consequently, we cannot find that the trial court abused its discretion in finding that
defendants had failed to satisfy the due diligence requirement.
¶ 55 Since defendants have failed to establish one of the requirements for vacating the
judgment, we have no need to consider whether they also failed to establish that they had a
meritorious defense to the underlying action or whether they established due diligence in
discovering their defense.
¶ 56 CONCLUSION
¶ 57 For the reasons set forth above, we affirm the trial court’s judgment. First, the trial court
properly denied defendants’ motion for a temporary stay, where there was no evidence of a
settlement having been reached. Second, the trial court properly dismissed defendants’ section
2-1401 petition, where the claims in the petition were barred by res judicata and where
defendants did not act with due diligence in presenting their petition to the trial court.
¶ 58 Affirmed.
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